Two months after reporting a 70% increase in profits, Tandem Group plc has taken the unusual move of asking its shareholders to cancel the company’s share premium account so it can use reserves set aside to pay shareholders to instead pay off an accumulated deficit of £3.5 million (roughly $7 million at recent exchange rates).


The British maker of bicycles, golf gear, toys and other leisure products said it wants to use £5.3 million ($10.6 mm) now in its share premium account to pay off its deficit, according to a June 27 letter to shareholders. Britain’s Companies Act of 1985 prevents companies with deficits from paying shareholders dividends or buying back their own stock.


If shareholders approve the proposal, Tandem’s board said it will seek approval from the High Court of Justice in England and Wales to distribute any left over balance to shareholders.


Before it could resume shareholder payments, Tandem would have to assure the court it has taken steps to protect its creditors. The company anticipates that the court will confirm its plans at a hearing Aug. 13.


The company will count shareholders votes on the proposal at a July 21 extraordinary meeting of shareholders.


Last year, Tandem was able to cut its pension plan deficit in half and it  bought back 1.6 million shares in February. However, the company did not pay a dividend in its last fiscal year.


On May 1, the company reported its profits rose 70% to £1.1 million ($2.2mm) in the year ended Jan. 31, 2008. Turnover rose 3.2% to £34.9 million ($69.8mm). 

Tandem said sales of bicycles fell 5.9% on a 4.8%, rise in unit sales. Tandem’s cycling brands include British Eagle, Claud Butler, Falcon, Optima, Scorpion, Townsend and premium brands Dawes and Tourismo. It’s also makes Ben Sayers golf gear and has a toy licensing business that makes Barbie, Hot Wheels, SpongeBob Square Pants and other branded toys.


“The year ahead will be challenging,” the company told shareholders in its 2008 annual report. “Most retailers expect trading conditions to be tough with the uncertainty in the economy. In addition, our suppliers are experiencing exceptional increases in steel, oil and labour costs, particularly in Asia….We do not anticipate any growth in turnover for the first half of the year compared to last year. Turnover in the first quarter of the current year was down on the high levels achieved last year.”